NESTLÉ S.A. 2013 NINE MONTH SALES CONFERENCE CALL TRANSCRIPT 17 October 2013, 08:30 CET Speakers: Paul Bulcke, Chief Executive Officer, Nestlé S.A. Wan Ling Martello, Chief Financial Officer, Nestlé S.A. Robin Tickle, Head of Corporate Media Relations, Nestlé S.A. Luis Cantarell, President & CEO Nestlé Health Science, Nestlé Nutrition Patrice Bula, Head of SBU, Marketing and Sales, Nestlé S.A. John J.Harris, Nestlé Waters Chris Johnson, Head of Zone Americas, Nestlé S.A. Nandu Nadkishore, Head of Zone AOA, Nestlé S.A. Laurent Freixe, Head of Zone Europe, Nestlé S.A. This transcript may have been edited for clarity, and the spoken version is the valid record. This document is subject to the same terms and conditions found at http://www.Nestlé.com/Footer/Pages/TC.aspx. 1 Robin Tickle, Nestlé S.A., Head of Corporate Media Relations Slide – Title Good morning, ladies and gentlemen. Welcome to our nine months' sales conference here in Vevey. The conference will be held in English, but you can also follow it in German and French using the headsets provided. If you're watching the webcast, you can choose the right language by clicking on the respective link on the webcast page. Now, let's start. Paul, you have the floor. Paul Bulcke, Nestlé SA, Chief Executive Officer Slide – Title Thank you, Robin. Good morning, ladies and gentlemen, and welcome to our nine months' sales conference, and thank you for your interest in our Company. Also, I want to say welcome to everybody who is following us by the webcast, also thank you for your interest in our Company. On our podium we have, first, Wan Ling Martello, our CFO; on her left, we have Roddy Child- Villiers, Head of our Investors Relations; and on my right I have Robin Tickle, Head of Corporate Media Relations. And I have here in the front row my colleagues of the Executive Board who are there also to answer questions, maybe, later on. We're holding this Fall conference back in Vevey after a few years having been travelling. Also we have changed the format; we are combining now the investors'/analysts' call with the press conference, and that's because also, as these events are webcasted, we felt there is an increasing duplication of interesting points that we want to cover and we rather do it in one conference and we give it enough time to answer all your questions. So that's why we have combined it. We came back to Vevey for once after, I think, three years travelling. First we went to New York, then Paris and last year we were in Shanghai. What we wanted to convey with also having it in different physical locations was showing and sharing with you how our strategy, that we have been sharing with you in many locations is actually being done in the markets, because that's where the action is; that's where the results are brought in. So in New York, in our biggest market, we had all the aspects of our strategy explained to you through the different divisions that we have there. In Paris, we were focusing on innovation because there was already quite a downturn in Europe and how we could grow in Europe, and specifically in France, we shared with you the strength of innovation and how we wanted to go about our own agenda, in spite of all the negative headwinds to innovation. Shanghai was the dynamism, what's happening in the emerging markets. We speak about the emerging markets, well; it was really to share with you how we have increased our presence there; how we have increased our engagement in this country that has a fascinating prospects. But it was actually an example of what we are doing also in Africa; what we are doing in Latin America for so many years; it is engaging for the long term and building the capabilities there. You saw earlier this morning our sales figures of the nine months. I would say they are sound, healthy sales figures. They are growth-based and they show continued acceleration of growth, specifically real internal growth, which is the volume growth. 2 It is the growth that reflects market position and leadership and it is growth based. It was around the whole categories, also geographies. And we also are quite proud to show that still in Europe, in spite of all the negative consumer confidence, we can show growth way ahead of the market. Also how AOA zone has picked up in growth, again has increased their speed and growth. But I don't want to steal the show of Wan Ling. So Wan Ling, please, the floor is yours to comment a little bit on our nine months' results. Wan Ling Martello, Nestlé SA, Chief Financial Officer Slide – Title Thank you, Paul. Good morning, to everyone here in the room and happy Thursday to everyone who is listening in to the webcast. Slide – Disclaimer I will take the safe harbour statement as read. Slide – Highlights It has only been two months since we reported our first half results so there should be no surprises for you in our 9 months sales. Our sales, consistent with the first half, were driven by a broad-based improvement in our Real Internal Growth, or RIG as we call. This performance has enabled us to confirm unchanged our guidance for the full year. Our 9 month sales were 68.4 billion Swiss francs, with an increased RIG of 3% and pricing of 1.4%, which was unchanged from the first half, giving organic growth of 4.4%. One meaningful issue in the last few months has been the strengthening of the Swiss franc against most currencies. There has also been significant weakness in a number of emerging market currencies, such as those of Brazil and India. Our currency impact for the 9 months was negative 2.5%, down from minus 0.9% at the half year. Now coming back to RIG, I would highlight in particular the performance of Zone Europe, where we are growing in a “no-growth” environment, and of Zone Asia, Oceania and Africa, where we have seen a strong acceleration in the RIG. This broad-based growth, as Paul alluded to earlier, both in emerging and developed markets, is one confirmation of Nestlé’s commitment to being the “And Company” – a,n,d and- If you recall back in the full-year roadshow, we talked about Nestlé being an And company, developed - emerging, PPP - premium, investing for the future as well as delivering for the short term. So in this case determined not just to benefit from the growth in the more dynamic emerging countries but also to grow in developed markets, as well. With all the excitement in recent years about the potential for growth in emerging markets, it is sometimes forgotten that developed markets account for around 50% of the world economy. One of the points of difference in Nestlé’s growth has been that we are equally focused on growing in developed markets, seeing no reason why we should limit ourselves to that 50% of the global economy that is driven by emerging markets. With the slowdown in emerging markets, our continued focus on the developed markets is perhaps becoming an 3 even greater differentiator. In the first 9 months of 2013 we grew 1.1% in the developed world as well as 8.8% in emerging markets. Among product groups, I would highlight in particular the consistent good growth in PetCare, and the acceleration in both Confectionery and Powdered & Liquid Beverages. Slide – Operating Segments Our pattern of growth, with all areas contributing positively, is the same whether you look at our operating segments, at the Zones and globally managed businesses, which you can see on this slide … Slide – Product Categories … or whether you look at our product groups, which you can see on this next slide. ALL have contributed positively to our organic growth in the first 9 months. Slide – Regional Performance This next slide pulls together all our globally and regionally managed businesses into the 3 regions. Again, all three grew. In Europe we achieved RIG of 1.9% and organic growth of 0.9%. Somewhat unusually, but it’s a pattern we have seen already this year, our RIG in Europe was higher than our organic growth, reflecting deflation in some categories, particularly Coffee and Chocolate. In the Americas, we had RIG of 2% and organic growth of 5.1%, and in Asia, Oceania and Africa we had 5.8% RIG, with organic growth of 6.9%. These last three slides demonstrate both that our growth is broad based, and that ours is a strong performance, given the economic environment we have today. Let’s now look at our performance in more detail, starting with Europe. As I did at the first half, I will discuss both the Zone and globally managed businesses together by region. Slide – Europe There is nothing I can add to the debate about the challenges facing many economies in Europe. What I can say, however, is that our Zone Europe management has refused to give in to the macro-issues, instead, focusing on identifying opportunities to grow the business. Successes have included addressing the needs of cash-strapped households, as you would expect, but also, more counter-intuitive perhaps, innovation focused on premiumising our categories. They have also been very focused on increasing distribution of our products, ensuring their products are present not just in supermarkets and convenience stores, but in all channels.